Antitrust Division Renews Focus on Seeking Civil Damages for Antitrust Violations Harming Government
On November 14, 2018, the U.S. Department of Justice’s Antitrust Division (the “Division”) announced global settlements with three South Korea–based fuel companies for their role in a decade-long bid-rigging conspiracy that targeted fuel-supply contracts to U.S. military forces in South Korea. The settlements resolve both criminal charges and parallel civil claims against the three defendants and are the first of what is expected to be an increased focus on seeking civil damages against defendants when their antitrust violations harm the government.
The Division alleged that SK Energy Co. Ltd., GS Caltex Corporation, and Hanjin Transportation Co. Ltd. were three members of a large conspiracy of Korean oil refineries and logistics providers that colluded in the bidding process for fuel-supply contracts from around March 2005 through March 2016. The Division alleged that the defendants and their co-conspirators used secret meetings and communications in order to agree in advance which conspirator would win a particular bid. The collusive bids were submitted to the Defense Logistics Agency (DLA), the entity responsible for procuring fuel for military installations across Korea, as well as the Army and Air Force Exchange Services (‘AAFES‘), the entity responsible for procuring retail gasoline for use by military personnel and their families while overseas.
Under the terms of their plea agreements and civil settlements, the defendants will pay a total of $236 million, including $154 million in civil damages, for their roles in the conspiracy. In reaching their settlements, the Division worked alongside attorneys from the Civil Division. Historically, in cases where the government has been the victim of an antitrust crime, the Civil Division has conducted a separate follow-on investigation pursuing treble civil damages under the False Claims Act. All three defendants have agreed to cooperate with ongoing criminal and civil investigations against the other co-conspirators.
Division Uses Settlements to Announce Increased Clayton Act Section 4A Focus
In pursuing its civil claims against the defendants, the Division relied upon Section 4A of the Clayton Act, 15 U.S.C. § 15a (“Section 4A”). This provision permits the government to recover treble civil damages when it is injured as the result of a violation of the antitrust laws. The statute was originally passed in 1955 in response to a Supreme Court decision ruling that the government was not entitled to pursue civil damages for antitrust violations, but could only seek criminal fines. That version of Section 4A only permitted the recovery of single damages. Section 4A was amended in 1990 to provide for treble damages, consistent with the treble damages afforded to private antitrust plaintiffs, as well as to the government under the False Claims Act.
However, since 1990, only three Section 4A cases had been filed prior to the Korean fuel-supply settlements, resulting in less than $10 million in recovered damages.
On November 15, 2018, Assistant Attorney General Makan Delrahim highlighted the Korean fuel-supplier settlement as the first case in what he characterized as a “revitalization” of the Division’s use of Section 4A to seek civil damages, in addition to criminal fines, when the government is the victim of antitrust violations. Speaking at the Antitrust Section of the American Bar Association’s Fall Forum, AAG Delrahim expressed his hope that this new focus on Section 4A enforcement would serve as a further deterrent to antitrust conspiracies that target the government.
AAG Delrahim also explained that the use of Section 4A should increase cooperation, as leniency applicants facing Section 4A claims would only be subject to single damages if they fully cooperate, rather than the treble damages called for by the statute, consistent with the Antitrust Criminal Penalty Enhancement and Reform Act of 2004.
The Division’s renewed Section 4A enforcement complicates antitrust investigations for companies where the government has potentially suffered losses from bid rigging or price fixing. On the one hand, the threat of civil antitrust damages gives the Division another tool with which to quickly seek settlements from defendants and obtain their cooperation in exchange for paying less in damages than they would if the Division were forced to litigate. In an “open and shut” case where there is little room for argument, global resolutions such as the one announced last week could provide benefits to both parties, as the company gains some measure of certainty as to the penalties to be imposed, while the government is able to recover some of its losses and obtain valuable cooperation.
However, the Division’s use of parallel proceedings is more likely to slow down resolution of cases rather than speed them up in the majority of cases where the government pursues Section 4A claims.
First, given the historic role of the Civil Division’s involvement in follow-on False Claims Act proceedings, the Division is unlikely to pursue Section 4A claims by itself. This means that companies subject to Section 4A claims will have to deal with the added complication of negotiating with additional DOJ staff — the Korean fuel-supply case involved criminal and civil teams from the Antitrust Division, as well as attorneys from the Civil Division pursuing False Claims Act claims. Navigating joint investigations with two divisions that rely on different and, at times, inconsistent policies presents unique challenges to the subjects of the investigations. Notably, a subject of the investigation faces an uncertain process. As an example, there are very strict limits under the Federal Rules of Criminal Procedure on the ability of the criminal team to share any information about the criminal investigation, including evidence that they have received in response to a Grand Jury subpoena.
Second, the amount in criminal fines or civil damages that a corporate offender is willing to pay is often the sticking point in plea-agreement and settlement negotiations. Because there are different legal frameworks for determining the criminal fines and civil damages, attempts to resolve criminal charges and civil claims together could delay a resolution until these types of issues have been settled. For example, it may not always be apparent that the government has been “injured” by the conduct in question, much less by what amount. In addition, from the DOJ criminal prosecutors’ perspective, this delay could affect the timetable for obtaining critical cooperation that could advance and expand the ongoing criminal investigation.
It is unclear the extent to which Section 4A claims will become standard operating DOJ procedure moving forward. However, AAG Delrahim’s statements, along with significant financial penalties seen in the settlements announced last week, serve as stark reminders of the even greater need for government contractors to actively promote and maintain a strong antitrust compliance program. Any company involved in possible criminal antitrust conduct whereby the government may be a victim should appreciate the unique and difficult challenges of a potential investigation involving two DOJ divisions. Experienced counsel with extensive knowledge and understanding of the DOJ’s policies will be critical to successfully navigating a joint investigation.
Morrison & Forrester LLP partner Lisa Phelan was most recently head of the criminal antitrust office that filed these cases and is a member of the firm’s global antitrust practice; of counsel Megan Gerking previously served as a criminal trial attorney in the Antitrust Division and is a member of the firm’s global antitrust practice; and Rob Manoso is an associate in the firm’s global antitrust practice.